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November 02, 2018
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Business Success

How Much Time Are You Spending on Bookkeeping for Your Business?

Could you save money by outsourcing your payroll?

As a business owner, you know the importance of balancing your cash flow and streamlining your day-to-day operations. With everything you have to track and manage, it’s no easy task to determine the costs or the added value of outsourcing certain administrative tasks.

According to a survey conducted by the National Small Business Association in 2013, 40 percent of small businesses contracted out their payroll needs, and could typically expect to pay between $1,200 and $6,000 per year. On the other hand, nearly one fourth of companies that handle it internally reported spending six hours or more per month administering payroll, which adds up to nearly two full work weeks a year.

If you’re managing your own payroll and bookkeeping, you might not realize just how much of your valuable time it’s taking up. It’s important to take an honest look at the hours you’re spending on your books, to see if your time (and money) is better spent by outsourcing payroll instead.

Here are some considerations to help you determine whether the hidden costs of managing your own payroll are adding up to something more than they’re worth. If you already have a payroll service provider, these considerations may also help you determine if they’re giving you the best value.

Consider what your time is worth

A 2017 survey from the payroll company Paychex found that the average HR professional spent 17 hours a week completing tasks like payroll processing, managing benefits, and handling time off. That’s a little over two business days each week working on tasks which can be automated and outsourced. One reason why so many small and medium-sized businesses choose to outsource payroll is that the cost of freeing up 40% of their HR personnel’s work week amounts to less than 40 percent of what they typically pay a human resources employee.

Most small businesses don’t have HR staff, yet many still handle payroll in-house. According to figures provided by the US Census Bureau in 2018, of the 5.9 million American firms, more than half (3.6 million) have fewer than 5 employees. For these millions of businesses, the task of making sure everyone gets paid usually falls to the owner. Paychex points out that 47 percent of small business owners report spending up to five hours a week on payroll, and another 14 percent spend up to ten hours. If you’re a small business owner and you could be doing something better with 5-10 hours every week, outsourcing your bookkeeping is something to consider.

Don’t forget unforeseen costs

Unfortunately, the complexity of payroll taxes means that many small businesses face tax penalties at some point that they could’ve avoided. According to IRS statistics from 2015, 40 percent of small businesses in the US were fined an average of $845 for errors in paying payroll taxes. In addition to fines and extra taxes, there’s also the administrative cost involved in dealing with these errors.

If you’ve faced tax penalties in the past, be sure to consider those costs as you evaluate your business’s current approach to payroll.

Is your payroll provider giving you the best value? Considerations for business owners

If you handle payroll in-house and you’re wondering whether outsourcing payroll is the right choice, take a few minutes for a quick evaluation:

Add up the time you—or your staff—have spent on bookkeeping in the last few months. Would it be more cost-effective to devote that time to other tasks?

Take a look at your forecasted growth. Will you need to grow your staff to stay on-track? Could you optimize your operations to enable existing staff to use their time more effectively? If you or your employee are managing payroll, are they spending time on tasks that could be automated?

If it’s time to outsource payroll, or switch payroll providers, here are things to consider when choosing a payroll company:

What services do they offer? Some companies offer a suite of payroll-related services, plus healthcare and 401(k) planning, too.

Is their technology easy to use? Outsourcing should save you time, so make sure they offer intuitive and useful tools.

Is it a good fit? Your payroll company should be someone reputable and established, who will protect your money, your business data, and your workers from payroll errors.